In a Record Year for Deals, Success and a Few Missteps

By Steven Davidoff Solomon

Dec. 22, 2015

It’s time once again to hand out grades to the year’s deals and deal makers.

It was an astounding year on all fronts, as deal makers grew more aggressive and shareholder activism reached new heights. The merger market is on track for a record $4 trillion-plus year. Deal makers are no doubt celebrating, but they may also want to reflect that in these heady days, there were more than a few missteps and F’s.

THREE’S A CROWD In the pharmaceutical feeding frenzy this year — more than $600 billion worth of deals — the battle among Mylan, Perrigo and Teva stood out. Teva bid for Mylan, which bid for Perrigo. None of the deals panned out as Mylan adopted a “just say never” strategy that drove Teva to buy Allergan’s generic drug business for $40.5 billion. Some shareholders said Mylan did not fully explain the consequences of its move to the Netherlands, an accusation that may have hurt Mylan’s bid for Perrigo, which was rejected by shareholders in any case.

Perrigo gets an A for a rare hostile contest won on the merits; Mylan gets an F for fighting unfairly and poor shareholder relations, while Teva gets an incomplete for failing to follow through.

DUMB ACTIVISM This year, shareholder activists again dominated and companies ran to do their bidding, but there were troubling signs that the reign of activists was pushing companies into risky strategies. DuPont and Dow, each a target of activist hedge funds, agreed to combine in a deal where they also immediately agreed to split up into three companies. This risky bit of financial engineering promises $3 billion in savings, but the markets were lukewarm as the stock of both companies rose then quickly fell below the announcement prices.

Office Depot and Staples, meanwhile, pushed by the activist hedge fund Starboard Value, agreed to a $6.3 billion combination only to be later sued by the Federal Trade Commission, which sought to block the transaction. Starboard, which orchestrated the move, has fled to the lifeboats, and has sold about half its holdings in Office Depot.

For overly risky strategies, these and other activist “deals” receive an F. Justin M. King, who quit the Staples board in protest over a settlement deal with Starboard, wins this year’s first “profile in courage” award.

IT’S YOU, NOT ME The precipitous decline of Valeant Pharmaceuticals International’s stock price created hedge fund carnage and one of the more bizarre scenes of the year as William A. Ackman and his fund, Pershing Square Capital Management, held a four-hour conference call to defend Valeant. Mr. Ackman should have listened to his public relations people as he created more confusion over whether or not he supported management, driving the stock down further. Valeant stock has recovered somewhat, but Mr. Ackman, a brilliant investor by any measure, this year earns a C for a lack of consistency.

NONDISCLOSURE DISCLOSURE It’s not a takeover situation just yet, but the questions over Sumner Redstone’s health have left the two companies he controls, Viacom and CBS, in flux. The two have said little on the matter, leaving shareholders to ponder what it will mean when Mr. Redstone dies and his stakes are controlled by a seven-member trust. The excitement around this, as well as the claims made by a former companion of Mr. Redstone’s in a lawsuit, were worthy of a Bravo reality-TV show, but it was also an example of the perils of controlling stock and a founder strategy to “live forever.” Mr. Redstone deserves an F for not handing over the reins long ago.

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CreditHarry Campbell

BREADSTICKS Starboard also showed the real value of activism. After unseating the Darden board in 2014, the restaurant company turned a corner and began to see growth in its Olive Garden chain and its delicious breadsticks. Darden and Starboard earn an A on the midterm for this success.

I.P.O. SUCCESSSquare’s lawyers and bankers deserve an A for steering the company to a successful initial public offering that valued it above $4 billion. People may complain that this valuation was below its last private investment round, but they miss the fact that in just a few short years, Jack Dorsey has built a multibillion-dollar company.

TAX ARBITRAGE Whether you like it or not, tax-driven deal-making paid off big this year. A last-minute change by Congress exempted a number of pending real estate investment trust spinoffs from changes to the tax laws. It was a $1 billion tax gift to those who were prescient enough to announce their spinoffs before year-end. Pfizer’s desperate attempt to complete a tax-inversion deal with Allergan, meanwhile, shows how valuable the lower tax rates and ability to get access to foreign cash are to pharmaceutical and other companies. It has created a “have” class of prior inversions and the “have-nots” lusting to get out of the United States. Congress gets an F for not fixing this problem and highlighting the absurdities of the tax laws with its last-minute change for real estate investment trusts.

ANTITRUST ARBITRAGE We are in an age of oligopoly as industries become ever more concentrated in the hands of a few players. Nonetheless, this year saw a number of deals push the antitrust envelope and fail, including Thai Union and Bumble Bee Foods, Time Warner Cable and Comcast and US Foods and Sysco. Others, like Office Depot and Staples, look to be on the ropes, while Aetna and Humana and Anthem and Cigna may run into resistance. An F goes to the chief executives and their advisers for taking on these overly risky antitrust deals in the run-up to an election year. A special message to Office Depot: Just because the authorities let you buy Office Max, it doesn’t mean you get to buy them all.

FOR THE DEFENSEAirgas was finally taken over, and some trumpeted the deal as the triumph of the poison pill. In 2011, Airgas fended off an offer of $70 a share from Air Products and Chemicals; last month, it agreed to be sold to Air Liquide of France for $143 a share in cash. But Airgas triumphed only because of the rich takeover bid — its stock had underperformed until that point. In another takeover defense, Macerich used the Maryland staggered board statute to fight off a $16.8 billion bid from Simon Property. Both cases will have to be considered incompletes.

DELAWARE AND BANKERS Bankers remained in the spotlight in the Delaware courts. There was the unsuccessful appeal of a $76 million verdict finding Royal Bank of Canada liable for its advice in the sale of Rural/Metro. And Goldman Sachs fought a lawsuit over the discovery that, owing to a spreadsheet error, the buyer of Tibco paid $100 million less than the announced price of the sale. The case is pending. In the new year, bankers will continue to get strict scrutiny from the Delaware courts — and continue to complain that it is all so unfair. A C– all around.

IT’S NOT ABOUT YOU It’s hard to understand the conduct of Michael Gooch, the founder and C.E.O. of the interdealer brokerage firm GFI Group. Mr. Gooch tried to steer a deal to the CME Group in a transaction that would have sold part of the business to himself. His attempt was frustrated when Howard Lutnick’s BGC Partners jumped in. Yet Mr. Gooch resisted negotiating until the bitter end. He gets an F.

THE CARL C. ICAHN PERSISTENCE AWARD M&T Bank Corporation agreed to acquire Hudson City Bancorp more than three years ago. The deal was held up by Federal Reserve concerns over M&T’s anti-money-laundering compliance. In the meantime, Hudson City’s deposits declined by more than 30 percent. The deal finally closed this fall. The two companies get an A for persistence yet perhaps an F in economics, something Mr. Icahn never received.

Best wishes in the New Year, and for a more sober 2016.

A version of this article appears in print on , on Page B5 of the New York edition with the headline: In a Record Year for Deals, Success and a Few Missteps. Order Reprints | Today’s Paper | Subscribe